Best Budgeting Strategies for Midsize Families

Cheerful loving family lying among leaves in park.
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By Geoff Williams

If you're part of a family of four, you're nothing exceptional -- statistically speaking, that is.

According to the federal government's National Health Statistics Reports, two children (actually, 2.1) is the average number of kids in a household. That the average isn't higher may well be because of all the challenges put forth to married couples with children.

After all, two incomes are considered ideal for raising a family, and it's expensive to raise children. According to the U.S. Department of Agriculture, the costs come to $241,080 per child, and while the numbers for the second or third kid may go down due to hand-me-downs, they won't go down a lot. Daycare centers, for instance, don't charge less for the second or third child.

In fact, according to a study released this month, "The American Dream 2.0" from LearnVest and Chase Blueprint, which took the opinions of 1,223 men and women between the ages of 25 and 54, 51 percent of American consumers feel it's too expensive to raise children these days, and 37 percent have delayed having kids because of their financial situation.

So if you're part of a family with two adults and multiple kids, and you're looking for better ways to budget, here are a few suggestions.

Prioritize. Everyone prioritizes when budgeting, but it becomes more crucial as you add more family members. Clint Haynes, a financial adviser in Kansas City, Mo., who works with many middle-class families, says that after your main monthly expenses, like mortgage or rent and utilities, your top priority should be planning for the future. He suggests starting an emergency savings account that can ideally carry the family for three to six months. After that, he says you should budget for retirement, and then, if you can, save for your children's college.

"If you could put 4 to 5 percent of your annual income into a 529 plan, that would be ideal," says Haynes, adding that this isn't realistic for some middle-class families, especially if they're already struggling to fund an emergency saving account and a Roth IRA or 401(k).

Plan for the worst. Somewhere in your financial prioritizing should also be a life insurance payment in case the unthinkable happens. "Term insurance is what most people need," Haynes says. "That's a life insurance policy that expires over a set period of time, usually 20 to 30 years." He adds that generally, you'll want enough to cover five to 10 times your annual salary.

Adam Torkildson, a 30-year-old senior public relations associate in American Fork, Utah, has term insurance. "We got just enough that if I die, all our mortgages and bills will be paid off, and my wife would own our main property, as well as our rental property in Kansas, free and clear," says Torkildson, who makes $75,000 a year. He and his wife, Adrienne, have a six-year-old son and two-year-old daughter.

Communicate about money or designate one person to manage it. Managing money is stressful enough when you're doing it alone, but it's worse if you and your partner disagree on spending priorities. In fact, a 2009 study by Utah State University found that couples who bicker about their spending strategies once a week are more than 30 percent more likely to divorce than couples who reported arguing over finances a few times a month.

Some couples avoid financial dispute by agreeing that one person in the relationship will manage the money. "In my case, that's my wife," says Garrett Robinson, 27, an author in Sunland, Calif., a suburb north of Los Angeles. %VIRTUAL-article-sponsoredlinks%"She handles all of our finances. My income goes straight into her bank account, and I can't touch it. She's the one who decides what we spend things on."

Between the two of them, Robinson says, they make about $60,000 to support themselves and their son and daughter, who are 2 and 3. Robinson's wife, Meghan, 34, runs a daycare from their house, so she can still be a stay-at-home mother while taking on what probably, at times, feels like the role of a full-time banker.

The Robinsons split a two-story house with another couple. "The house costs $2,000 in rent, and right now, we're paying $1,100. But they're moving out in November, and from then on, we'll have the full $2,000 in rent," Robinson says.

Each month, he and his wife also pay $300 for their 3-year-old daughter's preschool, $250 for their family-friendly SUV and put $500 toward paying off their credit card debt.

Plan meals. Look at it this way: If you have two children and everyone eats three square meals a day, whether at home or work or school, you have 21 meals, or 84 servings of food, to think about every week. If you don't budget for food with a big family, overspending may hurt everyone far more than overeating.

And the older your kids get, the harder it is to keep the food budget under control, says Anna Peterson, a 52-year-old part-time, self-employed mental health counselor in Frederick, Md.

"Our biggest problem staying on budget is eating out," Peterson says. "It's easy and enjoyable to eat out. No one has to go shopping, cook or clean up."

But Peterson recognizes that the convenience comes with a price. "I can cook spaghetti with meatballs, bread and salad for a family of five for the cost of one meal at Olive Garden," she says. "Eating steaks out for a family of five can be more than $150. A pot roast can feed us deliciously for $30."

She and her husband, Mike, a railroad welder, have three children: a 22-year-old son and two daughters, 17 and 14. The Petersons' combined income is slightly over $200,000, and their house, student loans and two of their three car payments are paid off. The third car still has another 18 months to go, with a monthly payment of $450.

From a bystander's point of view, the Petersons seem to be doing well financially, but Mike is 59, and "we have not saved well for retirement," Anna says. "We will have Railroad Retirement, which is [a retirement program that's] higher than Social Security, but not enough for retirement, according to our financial planner."

This is why Anna Peterson is constantly reevaluating what the family spends money on. She says their second child had three-quarters of her first year at community college paid for through merit scholarships after they urged her to apply. "We wish we had encouraged our oldest child to look into scholarships more," Peterson says.

And with movies, the family now just rents them instead of buying. "How many movies are really re-watched?" asks Peterson, who adds that she also now goes to the library instead of the book store. "Little things add up."

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Best Budgeting Strategies for Midsize Families

Mobile-network companies do everything they can to pull you in the door, with smartphone offerings that often come with no upfront cost. Even the most popular models are available at big discounts, with most providers offering large subsidies in order to lock you into two-year contracts.

Once you're locked in, though, costs for monthly data, text and voice plans can run well over $100 a month.

That's fine if you actually use everything you're paying for, but many people don't. One Illinois consumer advocacy group found that state residents wasted as much as $1.4 billion by signing up for more-inclusive plans than they actually needed. Threats of overage fees lure subscribers into paying for more than they use. But look at your actual usage and then see if a cheaper plan would serve you just as well.

Speaking of phone service ...

Cellphone use has become nearly universal in the U.S., with a Pew Internet study finding that 91 percent of American adults have a cell phone. With plans that include unlimited or large amounts of minutes for use either locally or for long-distance calls, cellphones increasingly serve all the telephone needs people have.

In that light, paying for a landline is of limited use. The main advantage is that landline phone service often continues to work during power outages when cellphone use fails, but an average landline bill of around $30 a month is a fairly hefty price to pay for that security.

Like cellphone providers, cable companies have pushed customers into larger packages than many people want. Without a-la-carte options to pick and choose channels, many customers have to buy expensive tiered packages to get the channels they actually want.

With the rise of streaming alternatives like Netflix (NFLX) and Hulu, some former cable customers have successfully cut the cord, replacing monthly cable bills of $100 or more with much lower subscription payments. Also, look into cheaper package options that cable operators must provide. They're often not advertised, but they can be much less expensive than typical standard cable packages.

As summer heats up, cooling costs are on the rise, but one solution that covers both heating bills in winter and air-conditioning in summer is a programmable thermostat. By letting you tailor your energy use to times when you're actually at home, you can cut your total bills by 10 percent a year or more, according to figures from the U.S. Department of Energy.

One downside of programmable thermostats in the past was that they didn't handle unexpected changes in plans very well. But advances in technology make it even easier to use programmable thermostats, with some devices linked to the Internet and controllable using a smartphone. That way, if you're going to be home an hour early, you can reset your thermostat remotely in advance.

Mortgage rates have been on the rise recently, but some homeowners might still benefit from refinancing their home loans. Even with 30-year mortgages having gone up by more than a full percentage point in just a couple of months, rates of around 4.5 percent are still well below historical average levels.

Refinancing comes with upfront costs, so it's important not just to look at monthly savings but also at how long you plan to live in your home and whether you can avoid or reduce costs associated with refinancing. Given how big a part of your overall budget your mortgage payment is, though, even small percentage savings can add up to a nice boost for your finances.

Monthly bills can put a big weight on your shoulders. But by taking these simple steps and looking at other ways to trim your budget, you can go a long way toward escaping the bonds of paycheck-to-paycheck living and declaring your own financial independence from your bills.
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